Fitch: Fortis Buy Manageable for Central Hudson Credit Profile

  Fitch: Fortis Buy Manageable for Central Hudson Credit Profile

Business Wire

NEW YORK -- June 17, 2013

Central Hudson Gas & Electric (CHG&E) should be able to maintain its stable
credit profile based on an initial review of the provisions included in the
approved merger between CH Energy Group and Fortis, according to Fitch
Ratings.

As part of the merger agreement, CHG&E would write off $35 million of deferred
regulatory assets, be required to contribute $5 million to a community benefit
fund, and guarantee a total of $9.25 million ($1.85 million annually) of
synergy savings to be returned to customers over the first five years after
closing. In addition, CHG&E's customer rates would be frozen through July 1,
2015.

The rate freeze is Fitch's main rating concern. CHG&E's current multi-year
rate plan, which expires June 30, 2013, would be extended two years and will
require effective management of operating costs and capital expenditures
during the rate freeze period to maintain financial stability.

Fortis committed to provide CHG&E a cash payment of $35 million and to invest
$215 million over the next two years to offset the merger costs and to support
credit quality. The funds would be used only for expenses for which recovery
is authorized by the New York Public Service Commission (NYPSC).

We believe Fortis' cash infusion mitigates near-term financial pressure and
supports CHG&E's cash flow stability. Fitch expects bonus depreciation to
further enhance CHG&E's operating cash flows in 2013.

The terms of the approval include several bondholder protection features that
support CHG&E's credit quality and mitigate the increase in business risk,
Fitch believes. The features include a ban on cross-default provisions and
guarantees or financial support to Fortis, a commitment to continue to operate
CHG&E as a stand-alone entity, and a restriction on paying common dividends if
the company fails to maintain a minimum common equity ratio.

Fitch considers CHG&E's credit metrics supportive of the current rating
category. For the twelve months ended March 31, 2013, the ratios of funds from
operations (FFO)/interest and FFO/debt were 5.3x and 25.9%, respectively.
CHG&E has adequate liquidity with access to a total of $150 million under a
bank credit facility that matures in October of 2016.

We also expect to complete a full rating review of the credit after a written
order by the NYPSC is released.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.

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